ACIT vs SBL Pvt. Ltd.

1.

“Whether the Ld. CIT(A) has erred on facts and in law in deleting the disallowance made u/s 80IC of the Act when the assessee had not filed Form 10CCB electronically as was required?

2.

Whether the Ld. CIT(A) has erred on facts and in law in not appreciating that requirement of furnishing report of audit u/s 80-IC electronically was made mandatory with addition of proviso to Rule 12(2) of Income Tax Rules w.e.f. 1.04.2013, thus the provision had no occasion to be examined and interpreted by Supreme Court in case of GM Knitting (AY 2005-06) OR Wipro Ltd (AY 2001-02)?

3.

(a) The order of the Ld. CIT(A) is erroneous and not tenable in law and on facts.

(b)

The appellant craves to add, alter OR amend any/all of the grounds of appeal before OR during the course of the hearing of the appeal.”

7.7

The submissions of the appellant and facts available on record have been perused. The Assessing Officer has made disallowance of Rs. 24,54,75,713/- u/s 80IC of the IT Act, 1961. The Assessing Officer in the assessment order has held that with effect from 01.04.2013 i.e. A.Y. 2013-14, the electronical submission of form No. 10CCB has been made mandatory as per Rule 12(2) of the IT Rules and therefore manual submission of form No. 10CCB is virtually no submission and hence the assessee is at default regarding non submission of form No. 10CCB in respect of unit No. 2. Apparently, no adverse inference has been drawn by the AO against the claim of deduction 80IC of the Act except for non-filing of the report in form 10CCB electronically.

7.8

Appellant has placed the reliance on the decision of Hon'ble Supreme court in the case of CIT v. G. M. Knitting Industries (P.) Ltd. [2015] 376 ITR 456 (Supreme Court) which has settled the legal position on the identical issue. Appellant has brought to the notice of decision of Hon'ble Supreme Court in the cases of CIT v. GM Knitting Industries, 71 taxmann.com 25(SC). The Apex court has held that even though it is necessary to file a certificate in Form 10CCB along with the return of income but even if the same has not been filed with the return of income, but the same was filed before the final order of assessment was made, the assessee was entitled to claim deduction under Section 80-IB of the Act. Further, the Apex court has held also that making of a claim of deduction is mandatory, but timing is directory. Even if the claim is made during the assessment proceedings, such a claim is to be allowed. This ratio has been followed in several decisions. However, there is a contrary decision by the Hon'ble supreme court in the case of Pr. CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1 which was delivered in the context of withdrawal of exemption already claimed under section 10B Act within the due date. Apparently, the decision in Wipro Ltd (supra) does not affect the decision of G.M Knitting Industries case (supra). This is discussed in detail in succeeding paragraphs.

7.9

The aforesaid decision has been affirmed by the Hon'ble Madras High Court in the case of CIT v. AKS Alloys (P.) Ltd. [2012] 18 taxmann.com 25 wherein it was held that for claiming deduction under section 80-IB, audit report in Form 10CCB can be filed before assessment is completed, if same has not been filed along with return of income. Relevant paras from the judgment of the Hon'ble High Court are as under:

"5.

In so far as it relates to the substantial question of law (1) is concerned, namely, whether the filing of audit report in Form 10CCB is mandatory, it is well settled by a number of judicial precedents that before the assessment is completed, the declaration could be filed. In fact, the said issue came to be decided by the Karnataka High Court in the case in CIT v. ACE Multitaxes Systems (P.) LTD. [2009] 317 ITR 207(Kar.), wherein it was held that when a relief is sought for under Section 80IB of the Act, there is no obligation on the part of the assessee to file return accompanied by the audit report, thereby, holding that the same is not mandatory. Therefore, it is clear that before the assessment is completed if such report is filed, no fault could be found against the assessee. That was also the view of the Delhi High Court in the case in CIT v. Contimeters Electricals (P.) Ltd. [2009] 317 ITR 249/178 Taxman 422 (Delhi), wherein the Delhi High Court, by following the judgements of the Madras High Court in CIT v. A.N. Arunachalam [1994] 208 ITR 481/75 Taxman 529 and in CIT v. Jayant Patel [2001] 248 ITR 199/ 117 Taxman 707 (Mad.) held that the filing of audit report along with the return was not mandatory but directory and that if the audit report was filed at any time before the framing of the assessment, the requirement of the provisions of the Act should be held to have been met.

6.

That is also the consistent view of the other High Courts, including the High Court of Bombay in CIT v. Shivanand Electronics [1994] 209 ITR 63/75 Taxman 93 (Bom.), apart from Gujarat High Court in Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Guj.) and Punjab and Haryana High Court in CIT v. Mahalaxmi Rice Factory [2007] 294 ITR 631/163 Taxman 565 (Punj. & Har).

7.

The Calcutta High Court in the case in the CIT v. Berger Paints (India) Ltd. [2002] 254 ITR 503/[2003] 126 Taxman 435 (Cal.) has also concurred with the said view which was followed by the Tribunal in this case.

7.10

In a recent decision, Hon'ble Delhi ITAT in the case of Canadian Specialty Vinyl Vs ITO (ITAT Delhi), ITA No.7612/Del/2019 which is referred to in page nos. 212-221 of paper bookdated 02/06/2023 has decided an identical issue. The relevant portion is reproduced as under:

"Held that in the present case, the assessee is claiming deduction u/s 80IC of the Act, therefore, the same would be governed by the proposition rendered by the Hon'ble Supreme Court in the case of G.M. Knitting Industries Pvt. Ltd. (supra), as per which the making of a claim of deduction is mandatory, but, timing is directory. Even if the claim is made during the assessment proceedings, such a claim is to be allowed. In view of the above, we are inclined to hold that the AO was not right in holding that the assessee is not entitled to claim deduction u/s 80IC of the Act on account of belated filing of return beyond the prescribed time limit u/s 139(1) of the Act. The Id. CIT(A) was justified and correct in holding that the assessee is entitled to claim deduction u/s 80IC of the Act as it was prevented by sufficient cause in filing the return of income within the prescribed time limit. In view of the proposition rendered by the Hon'ble Supreme Court in the case of G.M. Knitting Industries Pvt. Ltd. (supra), the claim of the assessee has reached to a higher pedestal because the Hon'ble Supreme Court has categorically held that for making a claim under Chapter VI-A of the Act which also includes provision of deduction u/s 80IC of the Act and the making of such claim for deduction is permissible even after filing of the return, but, before completing the assessment meets directory requirement in the filing of return of income."

7.11

The Jurisdictional Delhi ITAT in another case of Sanjay Kukreja Vs. ACIT [I.T.A No.652/Del/2023] Delhi-ITAT [Relevant AY 2019-20] while deciding an identical case for AY 2019-20 had held as under:

"Similar, view has been taken by the Hon'ble Allahabad High Court in the case of PCIT vs. Surya Merchands Ltd. 387 ITR 105 and the Hon'ble High Court of Uttarakhand in the case of CIT Vs. Sanjay Kumar Bansal 35 taxmann.com 514, and Hon'ble Karnataka High Court in the case of CIT vs. ACE Multi Taxes Systems Pvt. Ltd. 317 ITR 207. The ratios of the above decision squarely applying to the facts of the case, we hold that filing of audit report in Form 10CCB before the due date for filing of return of income u/s 139(1) is only directory and not mandatory for the year under consideration. Thus, we direct the AO to allow deduction claimed u/s 80IA of the Act.

7.12

The Apex court's ruling was followed by the Hon'ble Gujarat High Court in the case of Association of Indian Panel Board Manufacturer versus CIT in Revenue Tax Appeal Number 655 of 2022, in which the Gujarat High Court, while dealing with similar issue held that although the requirement of furnishing report was mandatory, filing thereof is a procedural aspect. Once, it is seen that the audit report, in Form 10B was available with the assessing officer at the time of framing of assessment, even though the same may not have been filed along with the return of income, the assessee is entitled to claim of exemption under Section 11(1) and 11(2) of the Act. Similar view has been taken by ITAT Chandigarh in two cases such as Symbiosis Pharmaceuticals (P) Ltd. Vs. DCIT (ITAT Chandigarh), IT Appeal No. 501 (Chd.) of 2017 dated 4/10/2017.

7.13

Another legal position that was settled by the Apex court with regard to allowability of deduction is through the decision of Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (S.C). wherein it was held that the incentive provision has to be interpreted in a manner so as to advance the objects of economic activities in the country and not to deny the claim merely on technical grounds. This ratio has been followed by the jurisdictional ITAT in the case of Fiberfill Engineers v. ACIT (2016) 177 TTJ 556 (Delhi- Trib.) dated 25-2-2016 wherein it was held as under;

"We have noted various decisions relied upon by the learned Counsel for the assessee which held that section 139(4) is to be allowed as proviso to section 139(1)" It had also been held that, "It is true that the heading of section 80AC clearly shows that deduction is not to be allowed unless return is furnished on or before the due date specified under sub-section (1) to section 139. However, it cannot be denied that section 80IC is an incentive provision and in view of various judicial pronouncements, particularly in the case of Bajaj Tempo Ltd. (supra) incentive provision has to be incorporated in a manner so as to advance the objects of economic activities in the country and not to deny the claim merely on technical grounds". Accordingly, reliance was also placed upon the principle laid down by the Apex Court in the case of Bajaj Auto Ltd. cited supra for the proposition that the incentive provision is to be interpreted liberally and the restrictions thereon have to be so construed so as to advance the objective of the section and not to frustrate it. Reliance was also placed upon decision of the Delhi High Court.

7.14

The Hon'ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Limited vs. CIT (2016) 95 CCH 0197 has gone one step ahead to state that in cases where returns have been filed, the question of exemptions or deductions would have to be considered and granted if eligible. The relevant portion of the said order is reproduced as under:

'19. Section 804(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VIA under the heading "C.-Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 804(5) would apply, though section SOP is not included in section 804C. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 804 (5) is a provision inserted through the Finance Act 33/2009 with effect from 1.4.2013 after the insertion of section 80AC as per the Finance Act of 2006 with effect from 1.4.2006. This clearly evidences the legislative intendment that the inhibition contained in subsection 5 of section 804 would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section SOP would definitely have to be considered and granted if eligible. Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration

20.

When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre-assessment enquiry is carried forward by issuance of notice under section 142 (1) or when notice is issued on the premise of escaped assessment referable to section 148 of the IT Act. This position notwithstanding when an assessment is subjected to first appeal or further appeals under the IT Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in deriving exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act. We thus answer substantial questions of law B and C formulated and enumerated above."

7.15

Bona fide delay was permitted by the jurisdictional High Court in the case of Poddar Pigments v. CIT (2008) 175 Taxman 302 (Del). The Hon'ble High Court was examining an identical situation in respect of claim of deduction under section 80-IB of the Act. In the said case claim under section 80IB had not been made in the original return and the time period for filing of the revised return had also lapsed. The assessee preferred an application under section 264 for condoning the delay. After examining the facts of that case, the Court held that "delay occurred due to bona fide reasons and there is no mala fide intent of the assessee in delaying in filing of the revised return". In the instant case, the form 10CCB for Unit 2 though was obtained from the auditor but was not filed online due to oversight as form 10CCB for Unit 1 which was filed twice. The auditor who had verified the Form 10CCB for both the units have accepted the fact that both the forms 10CCB for Haridwar Unit-1 & 2 were prepared and were available while filing of return. The form 10CCB for Unit 1 were inadvertently filed twice instead of form 10CCB of Unit 1. This position has not been disputed by the AO. Accordingly, the contention of the appellant seems to be bona fide.

"31.

The Court is unable to agree with Mr. Chaudhary that Circular No.9/2015 dated 9th June, 2015 of the CBDT would not apply to the belated filing of a return where the deduction is claimed under Section 80 IC of the Act. The said circular does not expressly say so. As explained by the Bombay High Court in Sitaldas K. Motwani (International Taxation) (supra), the phrase "genuine hardship" in Section 119 (2) (b) of the Act ought to be construed liberally. As observed by the said High Court "when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay."

32.

In the present case, since the entitlement of the Petitioner to the deduction under Section 80 IC of the Act even for AY 2010-11 has not been questioned by the Department on merits, there is no justification for not viewing the delay of 46 days in filing the return to be bona fide. It is not one of those cases where the delay is so extraordinary so as to not be condoned.

"5.

The Hon'ble Supreme Court in the case of CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1 (SC) is concerned, it is to be observed that the said case is relating to the claim of exemption u/s. 10B falling under Chapter III of the I. T. Act. However, the claim of the assessee company in the present case is u/s 80JJAA of the Act which falls under Chapter VIA of the Act. The Hon'ble Supreme Court in para 11 of the above judgment in the case of Wipro Ltd. has clarified the position that the exemption provisions are to be strictly adhered to whereas the decision of the Hon'ble Supreme Court in the case of G. M. Knitting Industries Pvt. Ltd. relating to deduction provisions u/s VIA of the Act will prevail. The relevant para 11 of the order of the Hon'ble Supreme Court in the case of Wipro Ltd. is reproduced below:

"11.

Now so far as the reliance placed upon the decision of this court in the case of G. M. Knitting Industries Pvt. Ltd. (supra), relied upon by the learned counsel appearing on behalf of the assessee is concerned, section 10B(8) is an exemption provision which cannot be compared with claiming an additional depreciation under section 32(1)(ii-a) of the Act. As per the settled position of law, an assessee claiming exemption has to strictly and literally comply with the exemption provisions. Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VIA of the Act operate in different realms and principles of Chapter III, which deals with "income which do not form a part of total income", cannot be equated with mechanism provided for deductions in Chapter VIA, which deals with "deductions to be made in computing total income". Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VIA shall be applicable while considering the claim under section 10B(8) of the I. T. Act."

6.

Further, in the case of Wipro Ltd. (as referred supra), deduction u/s 10B was claimed in the original return, which was sought to be withdrawn by way of filing a revised return of income so that the assessee can carry forward business losses. Therefore, in the said case the assessee was trying to withdraw the exemption which was otherwise available to it. On the contrary, in the present case, the appellant has claimed deduction under section 80JJAA of the Act and had been claimed by the assessee company in its original return of income itself duly supported by the Tax Audit Report and form 10DA."

"So far as the reliance of the Id. DR on another decision of the Hon'ble Supreme Court in the case of CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1 (SC) is concerned, it is to be observed that the said case is relating to the claim of exemption u/s. 10B falling under Chapter III of the I.T. Act. However, the claim of the assessee in the case in hand is u/s. 80JJAA of the Act under Chapter VIA of the Act. The Hon'ble Supreme Court in para 11 of the judgment in the case of Wipro Ltd. (supra) has clarified the position that the exemption provisions are to be strictly adhered to whereas the decision of the Hon'ble Supreme Court in the case of G. M. Knitting Industries Pvt. Ltd. (supra) is relating to deduction provisions u/s. VIA of the Act.

In view of this, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of G. M. Knitting Industries Pvt. Ltd. (supra) the impugned order of the Ld. CIT(A) is, therefore, set aside and the AO is directed to grant deduction to the assessee u/s. 80JJAA of the Act as claimed. The appeal of the assessee stands allowed.

'9. Further, we are also an agreement for the Counsel for the assessee that the case of Wipro Ltd. (supra) was rendered on a different set of facts, wherein in the original return of income the assessee had claimed benefit under section 10B of the Act and thereafter, a revised return of income was filed by the assessee foregoing the claim of benefit of Section 10B of the Act. However, the facts of the instant case are clearly distinguishable for the reason that in both the original return of income as well as the revised return of income, the assessee has taken a consistent stand and has claimed deduction under section 11(2) of the Act, and further in the original return of income (which was filed within the due prescribed date), Form 10 was duly furnished by the assessee. It was only later when the assessee noticed that the claim of deduction under section 11(2) of the Act required correction that the assessee filed revised return of income along with Form 10. Therefore, there is a marked distinction between the facts of the Wipro Ltd case supra and the instant facts. Further, observe that Ahmedabad ITAT in the case of Croygas Equipments (P.) Ltd. (supra) had also held that the principal of Wipro Limited supra cannot be uniformly applied to all cases and the aforesaid decision was distinguished by the Ahmedabad Tribunal, with the following observations:

"6.3

Another notable issue for consideration is that recently the Hon'ble Supreme Court was confronted with the claim of benefit u/s 10B in Pr. CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1. The assessee furnished original return taking the benefit of section 10B and did not carry forward the loss. Thereafter, a revised return was filed foregoing the claim of deduction u/s 10B. The AO rejected the withdrawal of exemption under section 10B by holding that assessee did not furnish the necessary declaration in writing before due date of filing return of income, which was an essential requirement for not claiming the benefit of section 10B. The Hon'ble High Court decided the issue in favour of the assessee by holding that the requirement of filing the declaration was mandatory but filing it along with the return of income u/s 139(1) was a directory requirement. The matter was brought by the Revenue before the Hon'ble Supreme Court. The assessee, inter alia, relied on the judgment of the Apex Court in G.M. Knitting Industries (P.) Ltd. (supra). Their Lordships held that the requirement of filing the report in support of deduction u/s 10B was not a directory but a mandatory requirement. It further held that both the conditions of - filing the declaration and filing it before the time limit u/s 139(1) -were mandatory and had to be cumulatively satisfied. Rejecting the reliance on G.M. Knitting Industries (P.) Ltd. (supra), the Hon'ble Supreme Court held that that decision was relevant in the context of deduction provisions and not the exemption provisions as given under Chapter III of the Act.

6.3.1

In our view, the aforesaid decision would not apply to assessee's set of facts and would not preclude/prohibit the assessee from claiming deduction u/s 10AA of the Act, for the following reasons:

(i)

Firstly, in the case of Wipro Limited supra, the issue for consideration before the Hon'ble Supreme Court was that in the original return of income, the assessee had claimed deduction under section 10B of the Act, whereas in the revised return filed under section 139(5) of the Act, assessee did not claim deduction under section 10B of the Act, and instead claimed benefit of carry forward of losses. It was in light of these facts that the Hon'ble Supreme Court held that on a plain reading of section 10B(8) of the Act, it is clear that where assessee claimed benefit under section 10B(8) by furnishing declaration in revised return much after due date prescribed under section 139(1), same was to be denied as requirement of furnishing declaration before AO before due date of filing original return under section 139(1) was a mandatory condition not directory. However, notably, there is no such equivalent/similar provision in section 10AA of the Act, which gives an option to the assessee to file a declaration before the due date of return of income under section 139(1) of the Act, to the effect that the provisions of this section may not be made applicable to him, for the impugned assessment year. Therefore, going by the strict language of section, the relevant statutory provisions on which the decision of Wipro was based, were on a different footing. Further, the issue for consideration in the Wipro case is also distinguishable, since in the assessee's case, it had claimed benefit of deduction u/s. 10AA in the original return of income (and only Form 56F was omitted to be e-filed alongwith return of income), whereas the issue for consideration in Wipro case supra was that once the assessee had claimed benefit of section 10B in the original return of income, whether such benefit could be foregone/withdrawn by filing declaration u/s. 10B(8) of the Act in the revised return of income filed u/s 139 (5) of the Act (and the assessee could, in turn, avail the benefit of carry forward losses in the revised return of income).

(ii)

Secondly, the Hon'ble Supreme Court in the case of Wipro Limited held that section 10B of the Act is an "exemption provision" and hence, assessee claiming such exemption has to be "strictly" comply with the exemption provisions. However, notably, the Hon'ble Supreme Court in the case of CIT v. Yokogawa India Ltd 391 ITR 274 (Supreme Court), held that section 10A of the Act is a "deduction provision" and not an "exemption provision". Therefore, apparently there seems to be a difference of opinion to whether section 10A/B provisions qualify as "Exemption" or Deduction" provisions. Therefore, since it is well-settled principle of law that deduction provisions, which have been introduced in the Statute to provide incentive to the assessee, should be construed "liberally", in our considered view, once it is not disputed that the instant set of facts, the assessee claimed the benefit of provisions under section 10AA in the return of income (which in our view is a mandatory/directory requirement), the benefit of section 10AA cannot be denied only on the ground that the assessee could not file Form 56F along with the return of income (being a procedural requirement), especially when Form 56F has been filed by the assessee at the assessment stage when such claim was being considered by the Assessing Officer.

(iii)

Besides the above, in the case of G. M. Knitting Industries (P.) Ltd. case supra, the Hon'ble Supreme Court further held that even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of assessment was made, assessee was entitled to claim deduction under section 80-IB of the Act as well. Therefore, in light of the decision of Yokogawa supra (which is held that section 10A of the Act is a "deduction provision" not an "exemption provision") and the decision of G. M. Knitting Industries case supra, which have been rendered on a similar facts as that of the assessee i.e. claim of deduction was made in the original return of income itself, in our view, the ratio laid down in the Wipro Ltd case would not disentitle assessee to claim benefit of section 10AA

8.

The Hon'ble court from time to time has also held that the fresh claim of deduction such as 80JJAA of the Act can be claimed even before the higher authority such as CIT(A) or ITAT. Reliance in this regard is placed on the following case laws:

10.

Accordingly, in the light of the above facts, the judicial precedents on the subject and the foregoing discussion, we find no infirmity in order of Ld. CIT(Appeals) so as to call for any interference."